Whether sponsorship expenses shown in Financial account attracts Service Tax.

[samiuddin ansari]

Sir,

One more query is required to clarified as to whether sponsorship expenses shown by any firm in their Financial account attracts service tax liability. However, it has been shown in the firm's expense side incurred owing to fees and other relevant expenses for education purpose of children i.e family members admitted in the foreign university. Solicit your necessary valuable guidance on the matter with supportive case laws, circulars, instructions etc. by Board, if any.

[KASTURI SETHI]

Dear Querist,

Sponsorship services were brought under Reverse Charge Mechanism vide Notification No.30/12-ST dated 20.6.12. Expenses shown in Profit & Loss Accounts mean you have made payment to the Service Provider on account of receipt of sponsorship service. Hence it attracts ST and 100 % liability is cast upon Service Receiver.

[samiuddin ansari]

Sir, my contention is the expenses shown above pertains to other than business purpose which will not be used in or in relation to manufacture or provisions of services either directly or indirectly in any manner and also not for some consideration whether in monetary or non-monetary form. Need more clarification on this aspect supported with case laws or clarification by Board, if any.

[KASTURI SETHI]

Dear Querist,. The question of using "in or in relation to " comes later. Expenses indicate you have received service which is under RCM. You may not be able to use in taxable output service. That is a separate issue.Regarding the 'element' of consideration, there is no '''free lunch". You understand well, being a knowledgeable person.

[KASTURI SETHI]

Is firm not a body corporate ?

[samiuddin ansari]

Sir, the above firm is registered private limited company.

[KASTURI SETHI]

As per Section 2(11) of the Company Act, 2013, a Pvt. Ltd. Company is body corporate. Hence RCM applicable. As per Rule 2(p) of the Cenvat Credit Rules, 2004 is not an output service. No doubt about applicability of Service Tax on recipient of service.

[YAGAY and SUN]

Service Tax under Reverse charge was applicable on sponsorship services.

AI Summary

Reverse charge on sponsorship services: recipient liable for service tax even if the expense is non-business.
Sponsorship services are subject to the Reverse Charge Mechanism and when a firm records sponsorship expenses, the firm as recipient-including a private limited company as a body corporate-is liable to pay service tax. Non-use of the service in the recipient's taxable output does not remove the RCM incidence, and the element of consideration is treated as present. If the sponsorship is not an output service under the Cenvat Credit Rules, the recipient generally cannot claim Cenvat credit against that tax.